# Managing Financial Resources and Decisions

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Managing Financial Resources and Decisions Table of Contents Introductions-------------------------------------------------------------------------------3 2.1 a) Calculation for the Cost of Ordinary Share Capital----------------------------3 2.1 b) Calculation for the Cost of Preference Capital---------------------------------3 2.1 c) Calculations for the Cost of Debenture Capital after Tax---------------------3 2.1 d) Calculation for the weighted average Cost of Capital of the company------4 2.2 Importance of the financial planning------------------------------------------------4 2.3 Informational needs of Directors, Senior Managers and Junior Managers-----5 2.4 Impact of the financial statements--------------------------------------------------6 Bibliography---------------------------------------------------------------------------------7 2.1 Introduction The financial Report is provided by Brian Harris Chartered Accountants to assist our client, X Limited, in understanding the results of financial condition and operations calculated in order to facilitate better and more effective decision making. 2.1 a) Calculate the cost of Ordinary Share Capital: Dividend Growth Model: Po = Â£2 = 200 p Po=market price for each share Do = 10 p Do= Company payment g =8% = 0.08 g= growth rate in dividend 2.1 b) Calculate the Cost of Preference Share Capital: Pp = Â£ 1.20 each Dp= annual dividend of preference share Dp = 12 % = 12/ 100 =0.12 Pp= market price of the preference stock Kp= cost of preference share capital 2.1 c) Calculate the Cost of Debenture Capital after tax: I = 10 %= Â£ 1, 000 I= interest rate Taxation= 20% t =taxation Pd = Â£125 Pd = price of debenture Kd= cost of debenture capital after tax 2.1 d) Calculate the weighted average cost of Capital of the company:
 MV (market value) CDC % OSC (Ordinary share capital) 2000 x 2 =4000 13.40 PSC ( Preference share capital) 1000 x 1.20 = 1200 10.00 D (debenture) 125% x 1000 = 1250 6.40 COC (cost of capital) 6450